Doing Business in South Africa - Commissioned by the Netherlands Enterprise Agency - RVO
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Doing Business in South Africa Commissioned by the Netherlands Enterprise Agency
Doing
2021
Business in
South Africa
Contents Introduction How can we support your business Trade & Investment Stepping stone to Africa High Potential Sectors Topsector Agriculture raw materials & horticulture Topsector Water Topsector Transport & Logistics Topsector Life Sciences & Health care Topsector Energy Topsector Creative Industries Doing Business in South Africa Doing Business in South Africa Starting a Business in South Africa Business Entities Business Banking Taxation Labour Regulations Black Economic Empowerment (BEE) Environmental Law Issues Affecting Business Corporate Social Responsibility Responsible Business Practice in line with OECD Guidelines Business Organisations & Useful Contacts Resources www.netherlandsandyou.nl
Introduction
Africa is increasingly recognised as a continent is facing and Dutch expertise. In sectors such
of business opportunities, especially for Europe as sustainable agriculture, horticulture, transport
- the neighbouring continent. Africa is the and logistics, water, clean energy, health and
second fastest-growing economic region after the creative industry the Netherlands offers
Asia. Governments have become more stable, added value and innovative solutions that are
improved governance, created a healthy business often very welcome.
environment, expanded infrastructure and
attracted foreign investment. This in itself offers South Africa has a dynamic innovation
opportunities for doing business in Africa. ecosystem with high potential start-up hubs
in Johannesburg and Cape Town. The country
As the most diversified and second-largest hosts large data and processing centres, is in the
African economy after Nigeria, South Africa top 10 of global AR/VR hubs, is a top publisher
is an ideal starting point to explore African of scientific articles on AI, is at the forefront of
opportunities. It is a major transport hub, has FinTech solutions and a pioneer in health-tech.
abundant potential business partners with The country for example performed the first 3D
experience in the region, a well-developed printed bone transplant in the world.
banking sector, strong regulatory and legal
frameworks, independent judiciary, high This booklet gives a brief overview of
internet penetration and strong protection of opportunities and information on doing business
social values and human rights (incl. women’s in South Africa. It also provides some tips and
and LGBTIQ+ rights). an overview of practical issues to take into
account. We hope that it will convince you to
After a decade of governance challenges, the not miss out on the opportunities. The Embassy
current administration led by President Cyril of the Kingdom of the Netherlands in Pretoria
Rampahosa has set an ambitious target to bring and the Consulate General in Cape Town are
South Africa in the top 50 of the World Bank’s ready to support you in your South African
Ease of Doing Business index again (South business journey.
Africa holds position 84 in the 2020 report).
As one of the fastest growing consumer markets,
South Africa presents numerous opportunities
with a population of over 60 million people and a
strong emerging middle class. There are strong
synergies between the challenges South Africa
INTRODUCTION How can we support your business? The Netherlands Embassy in Pretoria and the Consulate General in Cape Town, support Dutch companies to grow their trade and investment with South Africa. We provide detailed information about opportunities in sectors with high potential where the Netherlands offers specific added value, namely agriculture, transport and logistics, water, energy and health. We work closely with the Netherlands Enterprise Agency (RVO), the Netherlands Foreign Investment Agency and regional development hubs (f.e. Oost-NL). The Dutch government also provides a number of support instruments to assist Dutch businesses in South Africa. For detailed information on the available instruments please refer to the Embassy website. Together with the Netherlands Enterprise Agency, we offer the following basic services to companies: Trade enquiries • E-mail a trade enquiry to the Embassy/Consulate General on pre-trade@minbuza.nl • Interested in exploring business opportunities in South Africa? You can contact the Netherlands Enterprise Agency: T: +31 88 042 42 42 • Request tailor-made information (‘Informatie op Maat’) from the Netherlands Enterprise Agency, which provides a tailor-made overview of opportunities in the product market you are interested in South Africa. Fill in the online form for further assistance in this regard https://www.rvo.nl/aanvraagformulier-adviesgesprek-wssl Business Partner Scan Request a Business Partner Scan (Zakenpartnerscan) from the Netherlands Enterprise Agency in cooperation with the Embassy and Consulate-General. The Business Partner Scan will provide you with a detailed overview of potential business partners in South Africa. This extensive service carries a fee of 500 Euro. Contact: the Netherlands Enterprise Agency at www.rvo.nl or e-mail pre-trade@minbuza.nl
Monitoring business opportunities The Embassy and Consulate General are constantly scanning for business opportunities, particularly in the priority sectors. Relevant leads, are published in market studies and ‘kansenkaarten’ on the South Africa country page of the Netherlands Enterprise Agency website or the Linked-in page of the Netherlands in South Africa network. Contact pre-trade@minbuza.nl for more information. Support demonstration projects, pre-feasibility studies and investment preparation (DHI). The DHI (Demonstratie Projecten, Haalbaarheidsstudies en investeringsvoorbereiding) subsidy is an RVO instrument for businesses who want to enter a foreign market and reduce their trade or investment risk. More information is provided on the RVO website and for further questions you are welcome to contact the South Africa network on pre-trade@minbuza.nl. Support market entry in a supply chain with Partners International Business (PIB) One of the most exciting market-entry instruments is the Partners for International Business, where a consortium of 5-10 companies team up to identify and create business leads, build prospects and achieve deals in their subsector. The embassy provides support in matchmaking, organizing visits or trade shows and branding of the Dutch subsector in South Africa. The Mission network in South Africa can assist to answer questions and support the steps toward a PIB. Trade missions and visits to South Africa We regularly support and organise incoming and outgoing trade missions between South Africa and the Netherlands. Information about such missions is published on the Embassy social media, RVO website or through third parties which may organise such missions. Networking opportunities The Embassy and Consulate General regularly organise networking events for Dutch businesses with South African counterparts. These can be general receptions, targeted events, seminars or functions linked to a specific incoming mission or event. The aim is to provide a platform to share best practices and explore business opportunities with potential partners. We have experience in assisting small and medium enterprises (as well as start-ups/scale-ups) and encoureage entrepreneurs to participate and approach us at pre-ea@minbuza.nl or through our social media [linked-in], [facebook] and [twitter].
Trade & Investment
TRADE AND INVESTMENT Stepping stone to Africa The South African Economy South Africa is an economic powerhouse in Africa, leading the continent in industrial output and mineral production and generating a large agricultural production in the European winter. The country has abundant natural resources, well-developed financial, legal, communications, energy and transport sectors, a stock exchange ranked in the top 20 in the world, and modern infrastructure supporting efficient distribution of goods throughout the southern African region. South Africa also has a world-class and progressive legal framework. Legislation governing commerce, labour and maritime issues is particularly well developed, and laws on competition policy, copyright, patents, trademarks and disputes conform to international norms and conventions. The country’s financial systems are sophisticated and robust. Not only is South Africa itself an important emerging economy, it is also a gateway to other African markets.
Economic Growth South Africa’s economy was completely overhauled with the advent of democracy in the country in 1994. Until the global economic crisis hit South Africa in late 2008, economic growth had been steady and unprecedented. From the first quarter of 1993 to the second quarter of 2008, the country enjoyed an unprecedented 62 quarters of uninterrupted economic growth. Unfortunately a decade of deteriorating governance and ‘state capture’ under the Zuma administration led to a deteriorating fiscal position and a weak growth trend. In 2020 Moody’s cut South Africa’s sovereign credit rating to sub-investment grade (from Baa3 to Ba1). The current economic downturn in South Africa is also fuelled by the COVID19 crisis and the global commodity price collapse. Even though the country is facing a number of structural economic issues – including high unemployment, decreasing international competitiveness and lack of skills – government has committed to improve foreign investments and bring South Africa in the top 50 of ‘doing business’. The impact of Covid-19 on the South African Economy South Africa has one of the strictest lock-down regimes in the world, resulting in a serious blow for the economy. International travel might only restart at the end of 2020 or beginning of 2021. The government’s approach to established 5 phases to re-open the economy and manage the pandemic has become an international example, but is developed while the crisis hits the country. New analysis from OECD (2020) estimates that the initial economic costs of shutdowns could exceed 10 percent of gross domestic product (GDP) in South Africa during 2020. South Africa’s economy was already fragile as it entered the COVID-19 shock, despite a pickup in economic activity at the start of the year. Interest rate cuts and quantitative easing announced by the South African Reserve Bank will provide some support to consumer spending and encourage lending and investment. However, a combination of low commodity prices, capital outflows (mainly, portfolio investment), reduced tourism activity, and a major slowdown in key trading partners is expected to weigh heavily on economic activity. The lockdown announced by President Cyril Ramaphosa on March 23 has significantly affected retail sales and the mining sector, two key sources of growth for the economy. Measures taken by Government to curb the impact of Covid-19 Fiscal: The government will assist South African companies facing distress, through the Unemployment Insurance Fund and special programs from the Industrial Development Corporation. Within the realm of the budget, workers with an income below a certain threshold will receive a small monthly payment during the next four months. Funds will be available to assist small and medium-size enterprises under stress, mainly in the tourism and hospitality sectors. Allocations will also be made to a solidarity fund to help combat the spread of the virus, and it will be created with the assistance of private contributions.
On the tax front, the revenue administration will accelerate reimbursements and tax credits and allow small and medium-size enterprises to defer certain tax liabilities. The authorities have released partial cost estimates for the measures, so far amounting to ZAR 12 billion (0.2% of GDP). The government is working on additional support measures to be presented to parliament. Companies that have invested more in equality through skills development and transfer of ownership can receive more support than others. Monetary and micro-financial: The central bank has cut interest rates several times since the start of the year which has brought the repo rate to a historically low to 3.75%. Additionally, it announced measures to ease liquidity conditions by: (i) Increasing the number of repo auctions to two to provide intraday liquidity support to clearing banks at the policy rate (ii) Reducing the upper and lower limits of the standing facility to lend at the repo rate and borrow at the repo rate less 200 bps (iii) Raising the size of the main weekly refinancing operations as needed (iv) The government announced the launch of a unified approach to enable banks to provide debt relief to borrowers. Exchange rate: The central bank announced that it will continue its longstanding practice of not intervening in the foreign exchange market.
High Potential Sectors
HIGH POTENTIAL SECTORS Topsector Agriculture, raw materials & horticulture The agricultural sector has one of the largest growth potentials in the economy. Food and raw materials are traded in the European and Asian winters and demand is growing for high quality fruits, nuts and vegetables – in which subsectors South Africa is strong. The agricultural sector in South Africa is characterised as being a dual system. On the one side the sector is highly commercial (with about 30.000 farmers occupying commercially processing and retail segments of the value chain) big in grains, maize, citrus and tropical fruit. On the other side it has developing emerging agrifood players strongly supported by Government. Agriculture contributes about 10% of formal employment and about 2.6% of the country’s GDP. The Netherlands is the largest importer of fruit from South Africa. For example about three quarters of the total avocados produced in South Africa are exported to The Netherlands. Market opportunities Opportunities to strengthen the South African agricultural and food production sector cut across the entire value chain. Besides partnering with the highly commercial sector, training and skills development, access to finance for SME’s (innovative financing models) and linking these farmers to the markets form part of the main opportunities. In terms of primary production, Climate Change related challenges have been visible in the form of droughts and water shortages in the country. Climate Smart agriculture technologies are therefore of great importance. A recent study on agro-processing in South Africa has also shown that capacity strengthening and sharing of technologies for agro-processing would help Dutch companies to benefit from the growing need to support the South African agricultural and food production sector across the value chain. Market risks Specific challenges in South Africa are the inclusion of developing farmers in commercial agriculture, and the connection of farmers with consumer demands. There are limited financing opportunities for developing farmers while skills development is an important need. The Netherlands can help developing tailor-made concepts for the entire value chain of inclusive agriculture and food production and trade. The ongoing debate concerning land reform can pose a risk to African agricultural and food production sector across the value chain.
HIGH POTENTIAL SECTORS Topsector Water Achieving a water secure future is one of the biggest challenges for South Africa in the 21st century. South Africa is facing increasing water demands to meet the needs of a rapidly growing and urbanizing population, changing lifestyles, and economic growth leading to industrialization in water-scarce regions. In 2018 Cape Town was the first city in the world facing ‘day zero’. In most parts of South Africa, the availability of a reliable source of water has become more urgent than before. For this reason, water security is priority for the South African government. Especially water use in water dependent sectors such as agriculture and highly populated cities are changing rapidly. This has led to more national urgency for innovation in the water sector with regards to water efficiency, water re-use and smart water management. Some of the priorities of South Africa are: • Increase water re-use and waste water treatment: Less than half of SA’s municipal wastewater is treated. In order to solve the current water crisis more water has to be reused. • Reduce non-revenue water (37% and more) • Water efficiency: decrease average water consumption and improve the efficiency of water use. • Maintenance and operations of water infrastructure • Look at new sources of water such as stormwater and ground water. The cooperation between Netherlands and South Africa in the field of water is intensive and longstanding. Strong relationships exist between the Department of Human Settlements, Water and Sanitation and the Dutch Ministry of Infrastructure and Water through an MoU. The South African and Dutch Water authorities are working together on the Blue Deal, aiming to achieve safe and clean water for 2,5 million people by 2030. Strong relationships with companies, municipalities (such as Cape Town and Durban), knowledge institutes and small and large businesses makes market access easier.
HIGH POTENTIAL SECTORS
Market opportunities
The topsector Water can play an important role in reducing water loss and re-use of water in cities
and water consuming industries such as mining and industrial processing. The Netherlands has a
highly advanced water sector supported by strong research institutes and an export-oriented private
sector. With these capacities it can provide innovative technologies adapted to the African market as
well as business concepts especially in the field of water-efficiency, water re-use and water quality.
The Netherlands Embassy and Consulate hope to get to know you and are keen to share information
about our initiatives, such as:
• Collaboration with the city of eThekwini (Durban) on the development of PPPs in the
water sector, for example on water re-use and stormwater harvesting.
• The WaterHub: a testing facility for water innovations in Fransschoek, Cape Town
• A company mapping of industries in Gauteng (Johannesburg) who are keen to invest
in water re-use and efficiency solutions, in collaboration with South Africa’s National
Business Initiative
• A collaboration with the City of Cape Town on livable urban waterways
• Previous studies on industrial water re-use, water in agriculture and water in mining.
Market risks
Specific challenges in South Africa in the government focusses water sector are the fragmented
water facilities (national, province, city), preference for local suppliers and the levels of corruption in
public sector procurement. In addition, though many private sector companies start to realize water
is scarce, the low water price does not stimulate the business case to invest in water efficiency.
Therefore, the Embassy works with companies as well as the private sector to look for innovative and
implementable solutions.HIGH POTENTIAL SECTORS Topsector Transport & Logistics South Africa is a gateway to Southern Africa and an important transportation hub with major shipping lines hugging its coastline. The country is a continental leader in terms of transport and logistical sophistication with a strong road network, the largest rail network in Africa, and nine commercial ports to serve specific hinterlands. The South African government has highlighted the transport sector as a key contributor to the country’s global competitiveness and a critical enabler of economic growth. Despite the current economic headwind, the South African government is committed to invest R870 billion on infrastructure projects over the next few years- of which a significant portion of nearly R292 billion has been earmarked for transport and logistics. Freight rail, port development, road upgrades and other projects to improve economic integration will receive specific attention. Besides the planned government expenditures, state-owned corporation Transnet is already implementing a rolling seven-year R336.6 billion plan to expand and upgrade rail and port capacity. Opportunities There are significant market opportunities in more efficient and cleaner transport. Through the use of Dutch technologies, expertise and systems, Dutch businesses can make a valuable contribution to building competitive transport and logistics value chains in South Africa and the continent. Opportunities have been identified in tackling specific sector challenges such as cold storage (agriculture), spare part management (mining, health care), transport efficiency management (ports, healthcare, agriculture), dredging services and smart logistics (AI, IoT, e-commerce). There are also several opportunities on the hardware side including rolling stock and signaling systems for the rail industry; container handling, trucks and earth/ heavy-haul mining equipment. South Africa’s logistics landscape is the most sophisticated on the continent. However, logistics takes place in an environment of neglected maintenance and accompanying infrastructure degradation, and relatively high logistics costs. This inefficient environment provides inherent opportunities for improvement and optimisation. At present, many organisations in South Africa do not have the skills to utilise digital technologies effectively. This represents a significant opportunity for digital skills development and knowledge transfer
HIGH POTENTIAL SECTORS regarding the benefits of these technologies across the logistics sector. This could include pilot projects and benchmarking exercises as proofs of concept. The opportunity also exists for collaboration in infrastructure development projects, and for innovation for operational efficiency improvements. The objective is optimal efficiency of an adequately-capacitated internal logistics infrastructure system. Risks Unfortunately the sector has experienced a protracted period of government disinvestment which has resulted in severe bottlenecks and inefficiencies in the system. The state owned enterprises for rail, airports and ports have been involved in cases of corruption, high rotation of staff, and decrease in efficiencies. The current administration is taking steps though to make improvements in this vital sector of the economy. Except for some international companies operating locally, South Africa has not yet embarked on a path towards a cleaner transport sector. The transport sector is the second largest emitter of carbon emissions in the country.
HIGH POTENTIAL SECTORS Topsector Life Sciences & Health Patients from all over the world fly to South Africa for high quality and comparatively low cost health care, paid by their insurances. Healthcare in South Africa is provided through a highly unequal, two-tier system, with the private sector accounting for more than 50% of the country’s total expenditure on healthcare, while providing care to just 16% of the population. This is due in part to the relatively high cost of private sector healthcare, high levels of income inequality in the country, and the limited number of individuals covered by medical aid (mutual health insurance). The public sector, which accounts for less than half of the country’s total healthcare expenditure, services the remaining 84% of the population, a large proportion of which access fee-free primary care delivered through nurse-led clinics. Generally speaking, the private, for-profit sector is well-resourced and caters to a population that tends to be wealthier, urban, and more likely to be formally employed. In contrast, the public sector caters to the majority of South Africans, and is challenged with fewer resources, both in terms of health professionals and equipment and infrastructure.
HIGH POTENTIAL SECTORS South Africa is faced with a quadruple burden of disease which stems from a relatively high degree of communicable diseases (specifically HIV/Aids and TB); but also non-communicable diseases such as diabetes; high maternal and child mortality and high levels of violence and injuries Opportunities South Africa and the Netherlands are both healthcare innovators – for example respectively producing the first human heart transplant and the first artificial heart. There are significant market opportunities, which include making quality healthcare available to rural communities, developing sustainable building solutions for health facilities and optimising logistic. A specific area of opportunity relates to healthtech – specifically electronic health records, telemedicine, m-health, virtual healthcare, wearables, diagnosis and treatment decision support, advanced imaging and automated delivery and dispensing. The Netherlands’ innovative solutions for prevalent communicable diseases are also of specific relevance to South Africa. Risks The healthcare sector in South Africa is currently in a state of flux, with several processes in train that may result in huge structural changes to the sector. Most significantly, the government’s proposed National Health Insurance (NHI) programme, if implemented, will fundamentally alter the way both the public and private sector operate. At this stage, there is still much uncertainty surrounding the detail of what NHI will look like, and whether the plans will ever be put into practice. However, providers of all healthcare products and services should be starting to think about how to position themselves as suppliers to the NHI Fund, as part of their medium-term strategy. NHI opportunities will be seized by companies which are able to scale up to meet the challenge of delivering on a national footprint (and who are able to prove they can scale up).
HIGH POTENTIAL SECTORS Topsector Energy The national power utility Eskom has in 2019 and 2020 at times been unable to meet the national electricity demand. The ageing fleet of coal-fired power plants is suffering from a lack of maintenance and can therefore not fuel Africa’s most industrialized economy. As this has a negative effect on South Africa’s economic growth, energy is at the very top of the political agenda. Eskom is being restructured and more liberalization is expected. South Africa is investing in renewable energy, albeit on a relatively small scale. The country benefits from an abundance of wind in the coastal areas and sun in the western part of the country. Dozens of Independent Power Producers (IPPs) have become active in electricity generation over the past decade, including European companies. South Africa has a procurement system with annual bid windows for the delivery of renewable energy, scored for 70% on price and 30% on socio-economic impact. This system has received much praise, but also faces political headwind from opponents of the energy transition. Opening of the next bid window is expected early 2021. Official planning indicates procurement of 14.400 MW from wind energy; 6.000 MW from solar PV; 3.000 MW from gas, up until 2030. Recent announcements from government also included allowance of small-scale embedded generation, whereby industry players can generate electricity for own consumption. Technologies that can be used include bio-energy. Another development is that municipalities will be able to procure electricity on the open market. In the current system municipalities buy all electricity from Eskom, which they then distribute and sell to the inhabitants of the municipality. This liberalization will thus mean more space for IPPs and a weakening of the Eskom monopoly. Also this could encourage municipalities to invest in waste-to-energy, to solve two issues at once Opportunities • Become an independent power producer • Deliver goods or services to independent power producers • Deliver goods or services to municipal waste-to-energy projects • Offer solutions to businesses and households for small-scale embedded generation • Pioneer the nascent bio-energy market (liquid biofuels and solid biomass opportunities) • Gas infrastructure development Risks • Low economic growth results in lower growth in energy demand than expected • Political opposition to the energy transition can lead to delays in renewable energy developments
HIGH POTENTIAL SECTORS Topsector Creative industries The South African creative industries has been identified as a key force and driver of employment, tourism, urban renewal and FDI over the past two decades, and is touted as a key medium to reposition the country’s position within the global economy. This sector enjoys high recognition on the south African government’s development agenda. Furthermore, the creative industries contribute to the achievement of the Sustainable Development Goals (SDGs) through various creative mechanisms, and helps improve urban development of local economies guaranteeing job creation, infrastructure development, social inclusion and the promotion of arts, culture, traditions and heritage. Sustainable urban regeneration can continually help to promote the business environment, so that innovative firms can attract and retain a creative, educated, and entrepreneurial workforce and hence build the platform for resilient cities in metropoles like Cape Town, Johannesburg and Durban. These three cities are synonymous with having well developed creative economies and are home to a number of creative enterprises, where the sub-sectors that control those local landscapes are the performing arts, music, film, and visual arts. The Department of Sports, Arts and Culture in South Africa drives the overall mandate of the creative industries, funded through the Department of Trade and Industry and supported by the Department of Communications through oversight and distribution specifically of audio visual content on various platforms. The Netherlands Creative Industries sector is one of the most advanced internationally
HIGH POTENTIAL SECTORS with key focuses in Design (Communication Design and Interactive Design, Product Design, Interior Design), Architecture, Fashion, Gaming, Music and Television (exportation of TV formats). The latter is key as the Netherlands and South Africa have a Co-Production Film Treaty between the nations ratified by the Netherlands Film Fund and the National Film and Video Foundation (on behalf of the DTI). The Mission network in South Africa has recently started working with the creative industries as a top sector, and have thus far identified key opportunities in the Film, Fashion and Gaming niches in the market for NL businesses and entrepreneurs to explore.
HIGH POTENTIAL SECTORS Opportunities Gaming: Cape Town is the frontrunner in gaming for the African continent. Of the 70 gaming businesses in South Africa, 40-45 of them are based in Cape Town. This presents an opportunity for NL gaming companies to explore partnerships, talent and share markets as a stepping stone into the African market. Animation: Cape Town has the biggest animation industry in Africa but is experiencing a brain drain in this field. Film: Various regions in South Africa offer niche expertise and focus: Long film, animation, international TV series and commercials are big in Cape Town, while Johannesburg is the epicentre for the creation of local TV series. Script writing (overarching for Gaming, Animation and Film): Johannesburg and Durban have existing film commissions whereas Cape Town does not. This creates a mismatch between creative talent (which exists in Cape Town) and incentives, and the solution to this problem could the ‘sharing of markets’ between NL and SA given that the SA market is small and the majority of South Africans cannot afford expensive games and gaming devices. Additionally, script writers in Cape Town could learn and be capacitated by knowledge and expertise from NL. NL has TV formats as one of its biggest export products and is advanced in gaming industry. Opportunity is for example to train SA scriptwriters by NL script writers – this includes scripts in the gaming, film and animation sector. Fashion: Cape Town had a booming textile industry which took a large knock after South Africa opened up its market. South AFrican Fashion industry is now rising again with prominent designers really making their name on a global stage as well as African orientated content being highly popular globally. The latter can be seen in the global shift towards African content like the outfits warn by Miss Universe Zozibini Tunzi during the pageant, and the popularizing of African content in high grossing movie on global circuits seen in Black Panther. There is a big opportunity for how knowledge and markets can be shared in fashion, and the introduction of tech wearables which also takes into account the waste side of the fashion industry in terms of valorizing, re-using and re-purposing. Risks • Market is relatively small market compared to NL • Sluggish intergovernmental coordination to support the creative industries
Doing Business in South Africa
DOING BUSINESS IN SOUTH AFRICA It is not by chance that South Africa is referred to as the Rainbow Nation. The country is home to 58,8 million people with different cultural, linguistic and religious backgrounds - it is not one homogeneous society. The national identity is therefore complex and difficult to generalize. The population consists of four main ethnic groups: Black (81%), Coloured (9%), White (8%) and Asian (3%). The black population consists of a number of different ethnic cultures as well. Each group exhibits differing religious, cultural and linguistic traits. South Africa has a total of 11 official languages, including English, Afrikaans, Zulu, Xhosa, Sotho and a number of other African languages. The traditional African concept of ‘Ubuntu’ is widely respected amongst South African people, particularly the black population. Ubuntu is an ethnic or humanist philosophy that emphasises people’s allegiances and relations with each other; ‘‘I am what I am because of who we all are’’ QUALITIES ASSOCIATED WITH UBUNTU ARE MUTUAL RESPECT AND SUPPORT, INTERDEPENDENCE, UNITY, COLLECTIVE WORK AND RESPONSIBILITY. Business community
DOING BUSINESS IN SOUTH AFRICA The South African business community has historically been very conservative with a keen awareness of hierarchy and an accumulation of power at top-management level. Change is slowly introduced, partly by the large multinational companies that invested in the country post 1994. In line with this conservative attitude, the business community is generally risk averse as indicated by the importance of contracts. These are very detailed and verbal agreements are rarely used. The one factor which is important across all cultures is personal relationship. A good personal relationship will provide a solid foundation for further cooperation and will make doing business in South Africa easier. This is especially true within Government. Third-party introductions are therefore useful. It should be noted that there are distinct differences in business culture when comparing the different institutional relationships. Business-to-the-Public services can vary in experience, but the Business-to- Business culture is generally very professional and of international standard. The impact of Covid on Doing Business in South Africa Business Restrictions In March, South Africa announced a national state of disaster in accordance with the Disaster Management Act, 2002 (Act No. 57 of 2002) and implemented a countrywide lockdown, which limited economic activity to essential services. On May 13, South African President Cyril Ramaphosa announced the government’s intention to ease restrictions according to a Risk Adjusted Strategy: a 5-level system of alerts aimed at defining permissible levels of general movement, travel and economic activity. South Africa is currently on level 4 with the aim of moving to level 3 by the beginning of June. The system allows the government to place different parts of the country on different levels based on localised Covid19 infection rates. For a detailed overview of the different levels and the economic and social activity allowed, please see SA’s dedicated COVID-19 website. Obligations There are several pieces of COVID-19 related legislation and/or directives issued by the SA government, which impose obligations on companies operating in the country during the state of disaster. For example, prior to operating from their premises, businesses must develop a “COVID-ready” Workplace Plan and must designate a COVID-19 Compliance Officer to oversee the implementation of the plan and to ensure adherence to the standards of hygiene and health protocols at each office/location. There are also several directives that relate to labour relations which should be taken note of. Please see the comprehensive list of legislation, directives and guidelines on the SA Government website. An overview of Frequently Asked Questions for Dutch companies in SA can be found on the website of RVO.
DOING BUSINESS IN SOUTH AFRICA Starting a Business in South Africa This section provides a brief overview of the most important aspects of starting a business in South Africa. Permits The first step to take when starting up a business in South Africa is applying for a business permit. You may enter South Africa with a visitor’s permit, but once you are in South Africa you will need to apply for a business permit. This permit is needed to start up a business, and at the same time it functions as a temporary residence permit. When applying for a business permit you can simultaneously apply for permanent residence. All three permits are explained in detail in this section.
DOING BUSINESS IN SOUTH AFRICA Application Help The South African Department of Home Affairs oversees everything permit-related. Their procedures are complicated, and it is therefore advised that you make use of a registered immigration service provider. Most of these agencies also offer help with non-permit-related issues, e.g. insurance, tax registrations, business plans, and setting up bank accounts. Information on where to apply for a permit can be found on the Department of Home Affairs website: www.dha.gov.za Visitor’s Permit Visitors’ visas are for international travellers (citizens of other countries) who have permanent residence outside South Africa and who wish to visit the country on a temporary basis for tourism or business purposes for a period of 90 days or less. Requirements for visitor’s visas differ from country to country (http://www.dha.gov.za/index.php/immigration-services/exempt-countries), and the requirements are subject to change. Visas are not issued at South African ports of entry, and airline officials are obliged to insist on visas before allowing passengers to board. If you arrive without a visa, immigration officials are obliged to put you onto a flight back to your home country. Business Permit Foreigners who are contemplating investing in the South African economy by establishing a business or by investing in an existing business in the country must apply for a business visa, if it is his or her intention to be employed in the business. Different forms need to be taken care of when applying for a business permit. One of these is a certificate issued by a Chartered Accountant or a Professional Accountant registered with the South African Institute of Professional Accountants to the effect that you have at least R5 000 000 available in cash, or at least R5 000 000 in cash and capital to be invested in the Republic. The holder of a business visa is entitled to study part-time, without the need to apply for permission from the Department of Home Affairs in the form of an application for change of conditions to an existing business visa. NOTE: Bear in mind that the requirements for visas change over time, please visit the website of the Department of Home Affairs: www.dha.gov.za for the latest developments. Immigration service provider websites (The Embassy cannot endorse any company, but list service providers here for ease of reference) https://www.immigrationspecialists.co.za/ https://imcosa.co.za/ https://www.intergate-immigration.com/ https://www.visaimmigrationsa.co.za/ https://www.workpermitsouthafrica.co.za/
DOING BUSINESS IN SOUTH AFRICA Business Entities When setting up a business you have different business formats to choose from which are explained here. In the New Companies act 2008 there are two broad types of companies included: non-profit companies and profit companies. Profit companies The principal methods of doing business in South Africa are by using a: Public (name ends in “Ltd”) or private (“Pty Ltd”) company, Personal Liability Company (“Inc”), Partnership, Business trust, Sole proprietorship and External company (branch of a foreign company). Tax and other considerations affect the choice of a particular form of business entity. The most commonly adopted forms of doing business by foreign investors are private companies and branches. Branches of foreign companies are accorded legal status in South Africa by virtue of their registration as external companies but are not recognised as separate legal entities – except for exchange control purposes. You can reserve a company name and register your business through the Companies and Intellectual Property Commission (CIPC) website www.cipc.co.za. To register a company, please follow the steps outlined on the CIPC website. The first step is to register as a CIPC customer. However, it brings with it certain responsibilities, irrespective of whether the business is trading. For example, you will need to file an annual return and pay an annual fee. A company registration may vary between R175 and R475 (R175 for a private company, R475 for a non-profit company registered without members). The new Companies Act, which was promulgated in 2009 and has been effective since May 2011, rewrites South African law completely. The new Act aims to modernise the law, align it with international best practice, and make it more business friendly – especially by streamlining it with other South African legislation, such as the Promotion of Access to Information Act. By making it simpler and less prescriptive, the new Act encourages entrepreneurship as well as economic and employment growth. It is more flexible (companies are allowed to change certain requirements according to their own circumstances, for example); and adaptable (smaller companies have less arduous responsibilities than large public companies when it comes to corporate governance and financial reporting).
DOING BUSINESS IN SOUTH AFRICA
The South African government institution responsible for supervising the registration of companies is
the Companies and Intellectual Property Commission (CIPC). Their website offers extensive information
about different types of companies and requirements.
BizPortal
BizPortal is a platform developed by the Companies and Intellectual Property Commission (CIPC) to
offer company registration and related services in a simple seamless digital way which is completely
paperless. It was developed in response to the quest of improving the ease of doing business in South
Africa, specifically starting a business.
As the CIPC strives to provide innovative and convenient ways of transacting with the CIPC, BizPortal
is an additional channel to transact with CIPC. The CIPC BizPortal sees the CIPC collaborating with
other government agencies (UIF and Compensation), industry regulators and private sector
(Banking institutions).
BizPortal aims to offer a service where you would be able to register a company and on the same
platform apply for B-BBEE, UIF, Compensation Fund, domain names, and even initiate the process
of opening a business bank account; all this on a one platform.
Services Offered:
• Company Registration
• Name Reservation
• Tax Registration
• Domain Name Registration for .co.
• B-BBEE Certificates for Exempted Micro Enterprises (EME) with Turnover between
R0 and R10 000 000.
• Compensation Fund Registration
• Unemployment Insurance Fund (UIF) Registration
• Business Bank Account Opening
InvestSA One Stop Shop
InvestSA is a division of the South African Department of Trade, Industry and Competition (the dtic).
InvestSA supports investors exploring opportunities in South Africa by helping with information,
facilitation and aftercare. One Stop Shops provide practical assistance to streamline the process
of setting up a business.DOING BUSINESS IN SOUTH AFRICA Business Banking When you first come to South Africa on a visitor’s permit, you can only open a non-resident bank account. This account can only receive non-rand deposits. This is a means by which you can transfer funds into the country. After you have received your temporary residence permit (business permit), you will be able to open a resident bank account, which lifts the deposit restriction. Part of setting up a business is opening a business bank account. South African Banks are among the biggest banking corporations in the entire African continent. The existence of these banking institutions in South Africa has attracted investment globally and local. The South African Reserve Bank’s Prudential Authority has published its annual report for 2019/20, showing how the country’s five biggest banks continue to dominate the sector, despite an increase in competition. According to the SARB, South Africa’s banking sector is dominated by the five largest banks, which collectively held 89.4% of the total banking sector assets as at 31 March 2020 (March 2019: 90.5%). These banks are: Standard Bank: www.standardbank.co.za First National Bank: www.fnb.co.za Absa: www.absa.co.za Nedbank: www.nedbank.co.za Investec: www.investec.co.za Opening of a business bank account can be challenging. There are differences in the documents that each bank requires. It would be advisable to go through all four websites and choose which bank suits you best. Talking with people at each bank will also help in making a choice.
DOING BUSINESS IN SOUTH AFRICA Taxation Comprehensive tax information is available on the website of the South African Revenue Service (SARS) (www.sars.gov.za). Apart from general information on South African taxes it also provides practical guidance on registering with the tax authority. Accountants also provide a useful service in this regard. Value Added Tax (VAT) VAT can be compared to BTW in the Netherlands and is charged at a rate of 15% (As of 1 April 2018). Companies who make taxable supplies in excess of 1 million ZAR (± 52.000 EUR*) in any 12-month consecutive period have to register for VAT. A company can also register voluntarily if the total amount of taxable supplies has exceeded 50.000 ZAR (± 2.600 EUR*) in the previous 12-month period. Non-residents that carry on an enterprise in South Africa are required to register. Certain supplies are zero-rated or exempt from VAT. An application for VAT registration must be made on SARS eFiling (SARS’ electronic filing platform) whereafter certain documentation must be submitted, in person, at the SARS branch nearest to the place where the business is situated or carried on. A registered tax practitioner may assist the person in filing the application. A VAT101 application for registration may also be submitted at the SARS branch. For more information refer to SARS website. Income Tax The tax system of South Africa is residence-based: residents are taxed on worldwide income while non-residents, are only taxed on their South African income. The Netherlands has a double taxation agreement with South Africa so you will be taxed on your income only once. A company that is managed from South Africa or incorporated in South Africa is treated as a South African resident. If you have immigrated to South Africa you are seen and treated as a South African resident. Employer and employee taxes: PAYE, SARS, SDL and UIF Whenever you start a business, you need to register with your local South African Revenue Service (SARS) branch office. SARS will issue you with an income tax reference number. Even in the case that there is no salary/wages paid to employees as a monthly return, the company/employer should still be submitted to SARS. Employers need to register for both Pay As You Earn (PAYE) and/or SDL (Skills Development Levy). The company/employer deducts employees’ tax from an employee’s remuneration paid or payable. This process of deducting
DOING BUSINESS IN SOUTH AFRICA or withholding tax from remuneration as it is earned by an employee is commonly referred to as PAYE. The Skills Development Levy (SDL) is an employer’s tax set up to fund education and training. You are exempted from paying SDL if the total remuneration paid to employees is not expected to exceed 500.000 ZAR (± 26.000 EUR*) the next year. When you register you will have to indicate to which Skills Education Training Authority (SETA) you belong if applicable. For more information refer to the Embassy or SARS website. An employer who is registered or required to register with SARS for PAYE and/or Skills Development Levy (SDL) purposes, is also required to register with SARS for the payment of Unemployment Insurance Fund (UIF) contributions to SARS. The maximum rate of income tax for an individual is ZAR 532,041 plus 45% of taxable income above ZAR 1,500,000. The employer and the employees’ each contribute to the UIF an amount equal to 1% of remuneration but not exceeding ZAR 14,872 per month. The employer and the worker each contribute 1%. Contributions are paid to the Unemployment Insurance Fund (UIF) or the South African Revenue Services (SARS). SARS has recently revised the foreign earnings exemption for remuneration earned in a foreign jurisdiction. Previously remuneration earned in a foreign jurisdiction was exempt from income tax in South Africa. In terms of the revised exemption, from 1 March 2020 only the first ZAR 1 million of qualifying foreign earnings will be exempt from income tax in South Africa. In circumstances where the earnings are taxed both in South Africa and in the foreign jurisdiction, SARS will be obliged to allow the applicable foreign taxes paid as a credit in South Africa. Compensation Fund All employers must register with the Compensation Fund so that their workers can claim compensation for occupational injuries and diseases. A separate registration is necessary for each separate branch of a business, unless an arrangement for combined registration has been made. Capital Gains Tax (CGT) Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost. (CGT is levied on capital gains made when capital assets are disposed of.) The inclusion rate for South Africa is 40% for individuals and 80% for companies. Companies will effectively be taxed 22,40%. Individuals tax on capital gains depends on the taxable income. The maximum amount of tax for individuals will be 16.40%. When becoming a South African resident, the person/company will have to value the assets they possess on the date they will become resident. That value will be used to calculate future CGT.
Dividends Tax (DT) DT is a tax imposed on shareholders at a rate of 20% on receipt of dividends. It is withheld and paid to SARS by the company paying the dividend or by a regulated intermediary. (The DT replaced the previous system of Secondary Taxes on Companies on the 1st of April 2012). The double tax agreement with Netherlands will make that a dividend paid to a non-resident individual but received the dividend form South Africa will not pay the 20% tax and effectively. Dividends between South African incorporated companies are also exempt from this tax, only the actual natural person will pay the tax. Dividends tax is levied on all dividends distributed to shareholders by South African companies and foreign companies listed on a South African securities exchange, subject to certain exemptions. Dividends tax is waived where, inter alia, the beneficial owner of the dividend is a South African resident company.
DOING BUSINESS IN SOUTH AFRICA Labour Regulations Different labour laws are in place, not only to address the general aspects of labour, but also the inequalities that arose during apartheid. This section outlines the most important aspects that you need to take into account. South Africa’s labour laws are procedurally cumbersome. A good working knowledge of the relevant legislation is therefore a prerequisite, but given the complexities thereof, the assistance of labour lawyers or consultants is also advised. The relevant acts as well as practical guidelines are freely available on the Department of Labour’s website, www.labour.gov.za. TIP: Certain sectors have Sectoral Determinations that control their terms and conditions and which may differ from the Basic Conditions of Employment Act. One goal of Sectoral Determinations is to set minimum wages. Find out if your industry is subject to a Sectoral Determination by visiting: www.labour.gov.za/legislation/sectoral-determinations/sectoral-determination
DOING BUSINESS IN SOUTH AFRICA Black Economic Empowerment (BEE) BEE, or Broad Based Black Economic Empowerment (BBBEE) as the Act refers to it, is a government policy aimed at the economic transformation of South Africa through the increased participation of previously disadvantaged people at all levels of the economy. BBBEE aims to redistribute management, ownership and control of economic and financial resources in order to decrease income inequalities. BBBEE is enforced through a system of preferential procurement; companies that do business with government therefore prefer to buy from BBBEE compliant businesses. The BBBEE policy is legislated through the BBBEE Act no. 53 of 2003, and is now known as Act no. 46 of 2013. The Act has been updated on the 27th of January 2014. BBBEE- status is also taken into account by government in licensing and concessions and public-private partnerships. BBBEE operates through the Codes of Good Practice which utilizes a score-card for business that contains seven elements.
DOING BUSINESS IN SOUTH AFRICA Exempt Micro Enterprises (EMEs), with a turnover of below 10 million ZAR automatically qualify and obtain a level 4 BBBEE score. Any business or enterprise where the annual turnover is over R10 million but less than R50 million, is a Qualifying Small Enterprise (QSE). A QSE BEE must be measured on all 5 elements of the revised BEE scorecard. Each element has a target, and compliance is measured as a percentage of the target. This compliance score will determine what level contributor you are, and ranges from level 8 to level 1. Level 1 is the most compliant and level 8 is least compliant. Above level 8 is considered not compliant. Compliance with B-BBEE in South Africa is not required by law, but instead, incentivises companies to work towards achieving a higher B-BBEE rating level in order to remain competitive in the South African market. The result being, entities in South Africa are aiming to achieve a higher B-BBEE rating in order to attract customers and suppliers who themselves are looking to improve the enterprise and supplier development element on their B-BBEE scorecard. In addition, an entity’s B-BBEE rating is an important factor in acquiring government and public entity tenders, support and licences (in most industries). As foreign entities are not exempt from compliance, they are subject to the same criteria as any other South African entity. For foreign entities the most difficult elements to meet are often ownership and management control as result of global restrictions on ownership and management control that can be transferred to a South African entity. An alternative option is for entities to score high on socio-economic development, and skills development elements. Another alternative to ownership is to establish a so called “equity equivalent programme”, which must be approved by the Department of Trade, Industry and Competition, which requires the foreign multinational to fund the activities of the approved programme (for example providing training to a specific group of black people). Such a programme would allow a foreign multinational BBBEE to score ownership points without entering into an equity transaction. This option is however seldom used because the foreign multinational must usually have a global policy of only having wholly owned subsidiaries . BBBEE is not compulsory for non-governmental enterprises. However, the procurement chain drives BBBEE increasingly also in the private sector. A company may count up to 135% of its procurement spend on compliant BBBEE companies towards its ‘preferential procurement’ element, which increases its own BBBEE score. Companies are increasingly requiring BBBEE Certificates from their counterparts before entering into business.
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